A place to find news updates, legal analysis, and all official documents related to the various constitutional challenges to the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act of 2010)

Tuesday, July 27, 2010

The commerce power and the “requirment to maintain minimum essential coverage”

The provision of the ACA that has generated the most controversy thus far, and which is the most vulnerable constitutionally, is § 1501, the “requirement to maintain minimum essential coverage.” The principal argument against its constitutionality is that it exceeds the powers granted to Congress under Article I. In particular, the states have presented two arguments: (1) that it exceeds both the commerce power and the taxing power (as augmented by the Necessary and Proper Clause); and (2) that even if it falls within the taxing power (but still exceeds the commerce power), it is unconstitutional because it is an unapportioned “direct” tax (in violation of Article I, §§4 and 9). Here, I attempt to analyze the Commerce Clause question, a necessary component of either argument.

Section 1501 of the ACA reads as follows:

(a) REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.— An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.
(b) SHARED RESPONSIBILITY PAYMENT.—
(1) IN GENERAL.—If an applicable individual fails to meet the requirement of subsection (a) for 1 or more months during any calendar year beginning after 2013, then, except as provided in subsection (d), there is hereby imposed a penalty with respect to the individual in the amount determined under subsection (c).
(2) INCLUSION WITH RETURN.—Any penalty imposed by this section with respect to any month shall be included with a taxpayer’s return under chapter 1 for the taxable year which includes such month.

The remainder of the provision spells out, in great detail, (a) a series of exemptions from the requirement, (b) the means by which the charge (whether we call it a “penalty” or a “tax”) is calculated, and (c) what qualifies as “minimum essential coverage.”

The current framework for analyzing whether a given federal law falls within the authority granted Congress by the Interstate Commerce Clause (as augmented by the Necessary and Proper Clause) comes from the 1995 decision of United States v. Lopez, 514 U.S. 549. There, the Court stated that the commerce power gives Congress the power to regulate three categories of activity: (1) it can regulate the use of the channels of interstate commerce; (2) it can protect the instrumentalities of, or persons or things in, interstate commerce; and (3) it can regulate activities that substantially affect interstate commerce. The Court reaffirmed this basic approach to Commerce Clause questions in its subsequent decisions of United States v. Morrison, 529 U.S. 598 (2000), and Gonzales v. Raich, 545 U.S. 1 (2005).

(A brief aside: To many, Raich largely gutted the limits articulated by the Court in Lopez and Morrison by permitting Congress to regulate intrastate, non-commercial activity when such regulation is an “appropriate” part of a broader regulatory scheme that itself plainly regulates commercial activity. (In Raich, this broader regulatory scheme was the Controlled Substances Act as a whole. Thus, the Court did not address whether Congress could regulate Angel Raich’s non-commercial, intrastate activity in isolation.) But it is worth noting that the seeds of Raich were clearly planted in Lopez, where the Court alluded to the same idea. See Lopez, 514 U.S. at 561 (“Section 922(q) is not an essential part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated.”). And Justices Scalia and Kennedy joined the judgments (Scalia concurred separately in Raich) in all three decisions.)

The government has not contended that ACA §1501 regulates the use of the channels of interstate commerce. Nor does it argue that §1501 protects an instrumentality of, or a person or thing in, interstate commerce. Instead, the pertinent question is whether the minimum coverage requirement regulates an activity substantially affecting interstate commerce.

With respect to this third category under Lopez, by far the most significant factor is whether the regulated activity is “economic or commercial in nature.” In both Lopez and Morrison, the Court found that the regulated activities (the possession of a gun in a school zone and an act of gender-motivated violence) were not economic or commercial in any way. This was the critical analytic step to declaring both laws unconstitutional. In contrast, the Court in Raich held that the activity that Congress set out to regulate—the cultivation and distribution of marijuana—was economic or commercial in nature (even if Angel Raich’s particular non-commercial, purely intrastate cultivation and use was not). Thus, the Controlled Substances Act, even as applied to Angel Raich, was a constitutional exercise of the commerce power.

Thus, the critical question to answer is precisely what activity §1501 regulates. Shall we view §1501 by itself, or shall we see it at a component of a broader regulatory scheme? These differing conceptualizations essentially define the competing arguments.

To the states and their amici, Congress is attempting to regulate inactivity. And inactivity, by definition, cannot be economic or commercial in nature (at least by their lights). As Virginia argues, “[t]he passive status of being uninsured falls within none of [the three] categories” identified in Lopez. Or as the CATO brief contends, “[n]either Raich nor Wickard authorized Congress to regulate non-activity.”

To be sure, the decision not to purchase an item like health insurance, as an empirical matter, affects interstate commerce. And if we consider all the decisions by Americans not to purchase health insurance, we clearly have a substantial effect on interstate commerce in factual terms. But that cannot be the constitutional test—for the same was true of acts of gender-motivated violence. The question is a formal, legal one, not an empirical one. And it turns on the nature of the precise activity being regulated. Here, the states argue, that activity is actually inactivity, and thus it falls outside the scope of the commerce power.

(The CATO brief offers a slightly different version of a similar argument. It argues that, although requiring all Americans to maintain a minimum level of health coverage might be, in some sense, “necessary” to the ACA’s regulation of the sale of health insurance—a commercial market—such a mandate is not “proper.” It is improper because it mandates that Americans enter the marketplace and engage in commercial transaction with a private insurer. Thus, even if the subject matter of regulating the health insurance market is generally within the ambit of the Commerce Clause, the particular means employed by Congress in §1501 are outside Congress’s enumerated powers because the means are inappropriate.)

The states supplement this specific doctrinal argument—that §1501 regulates non-economic, non-commercial non-activity—with a broader, foundational point: However one construes the Commerce Clause (as augmented by the Necessary and Proper Clause), there must be some limit to Congress’s legislative authority. Any argument submitted by the federal government in support of the ACA must preserve some sphere of activity that is reserved exclusively to the legislative jurisdiction of the states. For that is the essence of the Constitution’s scheme of dual sovereignty and the principle of enumerated powers. The states argue that if the economic effects of a person’s failure to purchase health coverage are sufficient to make that decision regulable under the commerce power, there is no such limit. And this makes such a construction constitutionally unacceptable.

The federal government’s view of what Congress has attempted to regulate is much broader. Through its lens, the minimum coverage provision is merely one part—albeit a critical one—of a comprehensive effort in the ACA to regulate the market for health insurance. Thus, the relevant question is not whether §1501, in isolation, regulates an economic or commercial activity—just as whether Angel Raich’s particular activity (or the activity of the class of which she was a part) was not the issue in Gonzales v. Raich. Rather, the question is whether the activity that the scheme as a whole attempts to regulate—the purchase and sale of health insurance—is economic or commercial in nature. The answer to that question is clearly yes.

Conceptualized this way (as argued by the government), the only remaining question is this: Did Congress have a sound basis for concluding that requiring every American to acquire some from of health coverage was “appropriate” for this broader regulatory scheme to function properly? (One could see this as part of the Commerce Clause analysis, or as the commerce power as augmented by the Necessary and Proper Clause. I don’t think there is any real significance to labeling it as one or the other.)

Again, I think the answer must be yes. The ACA imposes a number of mandates on insurance providers, one of the most significant of which is that they will no longer be permitted to exclude people based on preexisting conditions. But forbidding preexisting condition exclusions can only work if the insurance companies are assured that the overall pool of persons seeking health insurance has not been adversely selected—that is, that it is not overpopulated with people who plan to use more in health care services than they anticipate paying in insurance premiums. Thus, Congress plainly had a strong basis for concluding that an individual mandate was an important part of the overarching regulation of the health insurance market. And that overarching regulation is plainly of an economic or commercial activity.

The government also contends that, even if the regulated activity should be conceptualized as the decision not to purchase health insurance (as the states contend), the regulated activity is still economic or commercial in nature. The reason is that every American (whether they like it or not) is a consumer of health care, and the relevant issue is how that care will be financed. It can be financed through health coverage, or it can be financed after the fact, often through uncompensated care, which shifts the costs to other taxpayers and purchasers of health insurance (through cross-subsidization). Thus, what opponents describe as inaction is actually a choice about financing or "market timing"—and that financing decision is an economic or commercial activity. (This is probably the less convincing of the government's two arguments, if only because of its far-reaching implications. Though one could argue that the financing of health care is unique among goods and services in the U.S. economy, the logic of this argument could potentially be extended to a range of other items—and thus potentially implies that the government could force individuals to purchase a wide range of items.)

In the end, where one comes down doctrinally on the Commerce Clause question turns largely, if not entirely, on how one conceptualizes the relevant regulated activity. If one sees §1501 as regulating inactivity—the decision to remain passive and do nothing—it is hard to see how it fits within the Lopez framework. (Stated differently, it is hard to see how inactivity would fit while maintaining any real limit on the commerce power.) Doing nothing at all, at least in isolation, would seem to be less economic or commercial in nature than possessing a gun in a school zone or committing an act of gender-motivated violence. But if one sees the regulated activity as the purchase and sale of health insurance (with §1501 constituting a critical component of that broader regulatory scheme), then Congress is clearly regulating commercial activity (at least once one accepts the post-1937 understanding of that term). And §1501 seems to be an eminently sensible—that is, “appropriate,” and hence "necessary and proper"—aspect of that regulation of the health insurance marketplace.

I will try to explain how I think the Supreme Court would decide this question, if it ever reaches the justices, in my next substantive post.